Angel investors – those who invest their own money in a start-up business in exchange for a minority stake – are a fantastic way to turn a business idea into reality. And while they aren’t that common, they do exist – especially in the UAE’s thriving investment arena.
But I’ve been thinking about what a typical angel investor considers before putting their own hard-earned money into someone else’s business idea. While you might think the average angel investor is a natural risk-taker, they do, of course, seek assurances that their investment will reap the rewards as start-ups have a high risk of failure.
So what factors do they consider before backing a start-up?
Here’s what my research unearthed.
Firstly, the management team backing the start-up is often considered more important than the idea, service or product. An investor will seek full background information on the founder and the management team; this includes previous experience, capabilities, financial forecast and the company vision and mission, which are clearly essential considerations.
To a certain extent, it comes down to personality as well – will the angel investor trust the CEO, like them and feel it’s a great company to work with? To help get the management message right, you might want to employ advisors at this stage, as something of a bridge between you and the investors’ questions. And speaking of questions, as highlighted earlier, it’s likely a savvy investor will want detailed information on your experience, scale-up plans, business and marketing plans including number of employees, salaries, financial projections, if your team has worked together before and the vision, mission and values, to name a few.
Business potential and returns are obviously crucial considerations, too. If you are looking for an angel investor, then ensure your financials look solid. You need to present your ‘big idea’ and be sure to explain why you feel your business (or idea) has potential. You’ll also need to show that you’ve done your due diligence, market research, projections, market share predictions and feasibility studies. One of the great things about Dubai is that it gives access to such a broad, multicultural audience – it’s a fantastic testing ground for new products and services.
A differentiator is also key to attracting investment. Take the time – which you undoubtedly already have – to think about what makes your product or service work – or stand out from other similar products. In a crowded market, what makes your service better, or product different? Why will people choose your brand over others? Is it offering something new or unique? You might also expect to answer what plans you have for product or service changes, developments and improvements over the coming years – in other words you’ll need to show a development pipeline. How can you show that (potential) consumers care about your product?
Positive early momentum for your product or service is also a useful flag for potential investors. Expect a mature investor to study your financials – but also expect to see some effort on your and the company’s part in gaining market traction. It might be that you’ve experienced good early sales – but how is that being maintained? It could be your membership of, or engagement with a business support programme, accelerator or incubator. Are you dealing with any known brands to sell your product to? How about customer testimonials? Do you have any strategic partnerships, advisors or mentors that show your commitment?
Of course, an investor will be looking at the potential returns, so any investment possibility must be encouraged by presenting a viable exit strategy for both parties.
Ultimately, many people start a business with a view to achieving a certain level of success, income, or business size, followed by a sale, merger, or IPO.
While these five points are all important, there are obviously many others. Key to any investment is presenting your business with passion, clarity and positivity. Good luck in your search for an investor!